Regulations and complying with regulation are a considerable burden on small firms, which consistently report that regulation is an obstacle to growth. Regulation for small business includes financial and psychological costs and worry about non‐compliance. Accordingly, regulation inflation raises increasing difficulties in understanding and complying with new regulation. Time and resources are diverted from running or growing the business. This paper explores self‐regulation as a mechanism for resolving the problems of regulation.
The authors first sets out the “regulation problem” as seen by the research community and by small business. The analysis explores the issues associated with small business regulation and compliance. They show that “imposed” regulation is expensive and may not be very effective. They continue by examining the nature of self‐regulation and consider a case study: the auto trade.
Self‐regulation can have beneficial effects. All regulation need not be top down control and command and self‐regulation can be effective if done well.
Self‐regulation seems to offer a number of advantages over legislation for small businesses, but it appears that a number of conditions need to be met if they are to be seen as effective. The authors discuss the implications and benefits of SFROs as an alternative way of assuring regulatory compliance.
Self‐regulation presents an attractive solution to some of the problems encountered by small business regulation through providing a credible, flexible and cost effective alternative to command and control legislation.
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